Can Cisco Prove It's The Most Open Of Them All?

Posted by: Peter Burrows on November 03, 2009

Cisco announced another major initiative today, called the Virtual Computing Environment coalition. It’s designed to make it a power in the data center and the emerging world of cloud computing. The networking giant is partnering with storage king EMC and virtualization software leader VMWare. Their goal: to meld the companies’ products into more integrated, efficient offerings, to decrease the headaches for customers that now have to cobble together their own servers, software, storage and networking gear…or pay big premiums to IT services providers to do it for them.

The focus is on selling pre-configured, pre-tested “v-blocks,” for customers that want to use standardized data center building blocks (otherwise, they can choose from the three companies’ existing product lines). The companies say they are also melding their sales and support teams, and have even created a joint venture that will work with big customers to design customized data centers to solve their particular problems. The emphasis, according to the coompanies, is on freeing corporate buyers and carriers from being locked-in to any one supplier or technology. “This brings together three companies that have a record of being open,” Cisco CEO John T. Chambers said. “We’re not going to try to lock you in.”

But for an announcement that’s supposed to be all about openness, CEO’s John Chambers, Joe Tucci and Paul Maritz looked a bit lonely up there, from my perspective. Just last March, Chambers attracted a who’s who of luminaries to help Cisco launch the first part of its data center assault: it’s entry into the server market back in March. On hand for that event were top execs froom Microsoft, Intel, Accenture and BMC, and the press release listed companies such as Oracle, Red Hat and NetApp as partners as well.

Indeed, the backdrop behind this smallish coalition is not about more industry cooperation, but more division. It’s another sign that the battle lines are being solidified in the epic battle for cloud computing relevance. While Microsoft and Cisco have long claimed to be in existing in contented co-opetition with each other, the coalition is not good news for Redmond’s ambitions in virtualization software. Cisco is expected to announce new collaboration technologies on Nov. 9, which should turn up the heat on the rivalry in this important market. More broadly speaking, don’t look for the coalition to push Azure, the data center operating system at the hear of Microsoft’s own cloud strategy.

Even more interesting is the impact on Cisco’s all-out war with HP, and its weakening partnership with IBM. Both of those companies used to resell billions of Cisco gear, but are increasingly pushing other brands (HP has its own line, and Big Blue has a partnership with Juniper). Could the coalition put Cisco in any favored position with VMWare and EMC—both key partners for these big computer makers? And Chambers suggests that the coalition’s approach will drive plenty of services business for its partners—potentially taking some from IBM and HP, who make a huge part of their money in this market.

That’s not an empty threat. Many times in the past, Cisco has helped pioneer new markets—not only through new products (usually acquired from some hot start-up), but by creating the necessary services to help customers take advantage of them. That’s how Cisco went from nowhere to No. 1 in the corporate phone market, for example. But rather than maintain long-term consulting and outsourcing deals for itself, over time it seeks to build up an ecosystem of service providers to develop the market themselves. That way, Cisco expands the market for its products, as well as its sky-high margins.

Then again, this coalition is a new kind of animal. As Chambers pointed out in the call, Cisco has an excellent record at making acquisitions work, and it has a long heritage of successful partnerships. But this deal takes partnering to a new, deeper level. “We’ll behave as one company,” says Chambers, who says the coalition will reinvent “how companies work together to serve their customers.” Holding it together will be a great personal trust between the CEOs, they say. Tucci notes that he has known Chambers for 20 years, and was once his boss. “I’d trust Joe with my life,” said Chambers. And it was Tucci that put Maritz, a former Microsoft executive, in the top job at VMWare.

My hunch is that Chambers would have rather done a deal based on equity, rather than solely trust. With more than $30 billion burning a hole in his pocket, it’s likely Cisco sought to increase its 1.63% ownership of VMWare. He even admitted during the call that he envied EMC’s majority stake (the storage maker owns 82% of VMWare).

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BusinessWeek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, Douglas MacMillan, and Spencer Ante dig behind the headlines to analyze what’s really happening throughout the world of technology. One of the first mainstream media tech blogs, Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.